Aramark (ARMK) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the second day of the Bernstein Strategic Decisions Conference. I'm absolutely delighted to have John Zillmer from Aramark, CEO, with us here today. Just as a sort of housekeeping. We do have the Pigeonhole question available. [Operator Instructions] I'll do my best to include all of them as we go through the discussion.

But just to kick us off, John, welcome. Thank you for joining. Became CEO of Aramark in 2019 with a big agenda. A lot has happened in the world since then. And so I think just as an introduction, how do you feel about what you've managed to deliver so far? Where we are on that journey? And what are the sort of the main areas on the agenda as we think about the next few years?

Certainly happy to do it. It has been a joy to be back at Aramark since 2019. I certainly didn't expect some of the things that have happened in the last couple of years. But we -- when I rejoined the company, my vision for the organization was to recreate the hospitality culture and growth culture that existed inside the organization for decades but had been lost over the last several years. And there are a number of initiatives that we wanted to undertake to achieve that, the cultural change, the investment in growth, the reintroduction of leadership that really understood and knew the business. And so my 100-day plan was pretty specific in terms of what I wanted to get done, decentralizing the organization, putting responsibility back in the field and really bringing leadership in that understood the contract food service business and the hospitality culture. And I'm happy to say we've largely achieved all those initiatives that we had undertaken. We've made significant progress, both from a cultural perspective as well as a performance perspective. And in light of what we've been able to do in terms of changing the growth culture even during the pandemic environment, I'm extraordinarily pleased with that, and we continue to have great success in that area.

Great. And then I think just in terms of what we're seeing on the ground at the moment, you've called out a number of the markets that are sort of in your COVID index of segments yet to be fully recovered. Where are we on those? How much left is there to go on the volume recovery?

Right. So in the second quarter, we had about 88% to 89% recovery -- recovered the revenues from pre-COVID levels across the range of businesses. We're continuing to make progress across all of the businesses as that COVID recovery continues to take place. Of the areas that are lagging, there's still business in the industry as employers ramp-up their return-to-work strategies. Businesses like convention centers that had calendars that needed to be rebooked and refilled. Conference centers, leadership facilities like the Boeing Learning Center and others that hadn't ramped up employee training activities yet. So those businesses continue to ramp-up more slowly. We expect throughout the third and fourth quarter to continue that ramping process. And our expectation is that we'll largely recover all those revenues on a pre-COVID basis over the balance of this year and into early next year. We expected I think at Analyst Day to have $1.7 billion to $1.9 billion worth of revenues yet to recover at year-end. I think that number has come down. We think it will probably be $1.5 billion to $1.6 billion yet to recover from those areas and those businesses. But the pace of that recovery will really be dependent on the institutions themselves and how they implement their strategies. Ultimately, all of our businesses will return to pre-COVID levels, including Business & Industry. Some of that will be from enhanced service offerings, from increased participation rates. And even in a remote working environment or a 3- or 4-day working environment, we expect to grow beyond where we were pre-COVID. And we've added significant new business in that sector as well, and we'll continue to drive that business.

I guess as a follow-up on Business & Industry, I mean, firstly, has it been that market that has driven that improved confidence for the revenue recovery this year? And then secondly, what have you seen on the ground from some of your bigger clients about their return to office? How is that going? And have you already started seeing those changed service levels in some of the bigger clients?

Certainly. In the -- we expect at year-end to be close to 80% recovered in B&I. So that -- and we're continuing to ramp that activity. I think at the end of the second quarter, we were about 60% fully recovered. I may be slightly under on that number. But by year-end, we expect to be about 80% recovered in terms of those revenues. And we are seeing changes in companies adopt different strategies, and they're evolving as well. You've seen the headlines of JPMorgan and Goldman want everybody to be back in the office and yet they're having difficulty getting everybody to return. And so it's taking longer than their expectation in terms of getting back to full recovery. And we're seeing that in the white-collar sector, mostly in a coastal kind of configuration, finance and insurance industries on the East Coast and tech industries on the West Coast. But most organizations are really aggressively pursuing a strategy of coming back to the office. And we expect it will evolve over the next 12 months. And we're seeing that ramp take place now. And as long as we don't have some kind of additional aftershock, we expect that, that ramp will continue and we'll be in very good shape.

Great. And initially, we saw higher per capita spending and sort of participation rates in B&I and higher per caps in Sports & Leisure. Is that something that's been sustained? Or was that as an initial part of the recovery?

No, it's actually -- it's been sustained and continuing to improve. We're seeing double-digit increases in per capita spending, particularly in the Sports & Entertainment area. In stadiums and arenas, per capitas have been largely increasing and at a very high level. That's through a number of different innovations, technology, menu offering, payment systems, cashless opportunities. Interestingly, some of the best per capita spending is coming from older facilities where those renovations, those tech renovations have been put in place and customers are responding very aggressively to it. So you can walk into the Colorado Rockies, you can walk into a facility with your credit card and grab 4 or 5 different kinds of micro beers and never have to touch a cashier, never be delayed. There are -- food lockers have been installed in PPG arena in partnership with Conagra where you literally can order from your seat and the food is delivered to a locker, you go and get it. It's temperature-controlled. You never have to talk to anybody, just literally go get your food. So that's driving the per capitas. We think it's sustainable. It has been sustained throughout this period and continues to grow.

Great. Let's come on to inflation, probably the key topic that comes up time and time again. Historically, the business has been able to deal with increased levels of inflation. There are ways that you pass that through. There are ways that you manage it. Is there anything different, firstly, about the current situation compared to what you've seen through your many years in the industry just given how high the level of inflation is around the world?

Yes. I would say the thing that's different was the speed of the ramp-up. The rate of growth and inflation, I think, took the world by surprise. And luckily, the mechanisms that exist in our contracts and the industry allow us to recover those costs and those increases. But there's -- there are multiple levers that we pull. Pricing, obviously, is a very important one. And we're aggressively pursuing price opportunities in our client locations. It depends on the contract type with respect to how do you pass that through. But as you know, in many of the cases, we're operating under a cost-plus basis or a management fee basis. So those inflationary costs are absorbed by the client organization if we can't get pricing in those locations or they don't want to raise price in those locations. So it's a trade-off between the clients' objectives and the subsidy, if you will, in those client locations. Where we have P&Ls, we have the opportunity to raise price. We have the contractual right to go ahead and pass that through. We're always cognizant of trying to do what's best for the consumer and driving participation first and cost recovery second. So we're managing price. We're managing menu mix. Now we're managing service hours. We're managing all those components of cost to achieve the objective ultimately for the client and the consumer. And so it's always that balancing act. But we've always been able to, and I anticipate in this environment, we've always been able to recover those inflationary increases. And I expect that we'll be able to now. There's a slight lag in some of the businesses in pricing recovery. I think higher education, if you send your children off to college, you've paid for a board plan for the semester, that price has been fixed. The price will get modified in the next semester. So that pricing, there's a slight lag on higher education. And in some businesses, we have government contracts that have contract anniversary date renewal opportunities that are sometimes indexed to CPI and sometimes not. But we are always negotiating and always asking. So even though the contract anniversary date might be August, we're already having those discussions and dialogues with clients to go ahead and pursue price to recover those costs. And so inflation is something that we have dealt with historically as a company and as an industry. It's why we're very confident that we can offset. And we project, obviously, to have significant earnings improvement through the balance of the year and margin improvement through the balance of the year even in the face of that inflation.

Sure. And could you give us any sort of sense of how big the gap is between the cost inflation that you're sort of experiencing in food and labor and how much price is being passed through? And I guess the sort of the upside to that question is, is this a key part of your messaging to clients and prospective clients that actually were able to offset a good amount of the inflation that's out there, and it's a reason to outsource.

Yes. That's a great point. And it is something -- it is part of the value proposition, being the service providers that we are that we are able to manage those multiple levers very efficiently. And it's always -- it's important to understand we manage this business with a weekly P&L. So our frontline managers are seeing their cost structures, their labor costs, their food cost on a weekly basis and can adjust very dynamically to those changing conditions. And so we're not victims of inflation. We're not victims of circumstance. We can manage in a very dynamic way. And so we fully expect to recover all inflation through pricing and service adjustments and/or service changes. And service changes are something as simply as putting in cashless systems so that you don't have to have cashiers. So instead of be having to pay a cashier to stand in a place in account for purchases, having cashless opportunities eliminates that expense, creates an enhanced productivity and is ultimately a better service for the consumer. So we'll manage all of those items in the total mix. But we fully expect to recover 100% of the inflationary cost pressures in the business.

Great. And are there any sort of parts of the business where it's much, much more difficult, like public sector contracts, schools contracts? Is that something where there's a significant exposure that you find -- is it something that we should think about? Or even there, is cost inflation relatively easy to pass through?

Yes. Even there, again, there's a slight time lag in terms of your ability to pass on price. For instance, in the corrections environment, you bid those contracts on a cost per meal basis. So that cost per meal is fixed until the anniversary date of the contract. And then we negotiate with the client or institution for enhanced recovery on the anniversary date. And as I said, sometimes that's indexed. Sometimes it's not. But again, even in those circumstances, even with the anniversary date may be in July, we're already there talking to those customers about what the needs are in the business and what we need to do in order to maintain a level of service for the client and the customer that's appropriate. And so even in those businesses, we fully expect to recover those cost increases. And it's K-12, corrections, those would be the 2 areas that would be subject to that kind of circumstance.

Great. And one of the strategic ways to handle inflation is the GPO. So it would be good to have an update on that. The CMD, I think Avendra spend was expected to be down about 15% from 2019 levels. But since then, I mean, hospitality has been recovering pretty strongly. So has that improved? And then how much of a competitive advantage is having a sizable GPO compared to the smaller caterers and compared to sort of in house out there at the moment?

Yes. It's a very significant competitive advantage. And I'm very happy to say those Avendra revenues have recovered to pre-COVID levels. That the hospitality industry, the leisure travel industry, the business travel industry has largely recovered and are driving revenues and income very significantly in the GPO. And that enhanced spend management gives us great opportunities in terms of leverage on the supply chain. It's what has given us the flexibility and the capability to be able to deliver day in and day out. We're the largest customer of Cisco, for example. So we have -- while Cisco may have problems in terms of distributing across their network, we're -- as a preferred and a very large customer, we're able to achieve those very high fulfillment rates. We're very lucky to be able to have that partnership. So the GPO produces very significant competitive advantage. It is -- we manage about $15 billion in spend, very significant portion of it on the food side and then obviously on the leisure side as well. It does give us a competitive advantage against the smaller and regional players and against the self-ops. If you think about one of the most difficult circumstances that self-operators have today is literally getting food delivered to their locations because they're a small purchaser of the product compared to an organization like ours that's buying billions of dollars' worth of product from a range of manufacturers and distributors. So we expect to continue to invest in the GPOs. It's an area that we see as long-term growth potential. We see very significant income opportunities from that sector, and we're out there selling that capability.

Have you seen examples of contracts where supply chain is the key driver of the outsourcing?

Absolutely. And we're seeing that in higher end. There have been a number of universities this year that have converted to self-op that had very significant challenges of sourcing and supply and where we were able to step into that contract in a very rapid way and solve the problem for them, not only from a food supply perspective, but also from a staffing perspective. Our labor staffing model, our talent acquisition model is very strong. On a comparative basis, we're able to staff and ramp-up operations much more effectively than the self-operator generally is. And so on both sides of the supply chain, we've had very good success.

Right. And then one final question before we can move on from the cost side of the business.

Sorry, you can't ask more.

Yes. When we started a year ago, labor supply shortage is probably one of the biggest headaches out there. We passed sort of peak labor shortages. And then the follow-up really to that is what learnings have we sort of taken from the last 2 or 3 years on the labor side that you expect to carry on in the business permanently?

I think we are past the peak supply or the peak labor shortage issue. And we've been very successful at driving supply to our locations through the talent acquisition teams. And I literally get a report every week in terms of what our employment levels are, how the talent acquisition team is working, what kind of numbers we have with respect to open opportunities from both a management perspective and a staff perspective. So we're very sensitive to that throughout the business. And we are in very good shape across the enterprise and having very little difficulty in sourcing. We've taken a couple of initiatives, which I think have really driven our success there. One of which is something as simple as daily pay. We have afforded the opportunity for all of our employees to receive daily pay through a third-party service provider. So if you're a frontline worker and you're working in a cafeteria in New York City and your car broke down, and you don't have to wait until your next paycheck before you can take the car to go get it fixed. You can get it -- you can ask for daily pay. It's a very small fee that the employee pays. And we had massive acceptance of that from the frontline employees. And it's also available to management. So we had almost 80% of our employees who have come on, signed up for daily pay, but only about 15% to actually ever use it. So it really is one of those things that has created a benefit and a value-added opportunity for the employee. It's something that has driven our ability to recruit and retain part-time workers, gig workers, seniors, literally every part of the workforce that we go to recruit from finds that it's a very attractive option. So along with implementing an employee stock option purchase plan, an opportunity for our employees to participate in the ownership culture of the company, I think was very important also. So that opportunity is available to the dishwasher at Goldman Sachs as well as it is to the managers of the organization. And we find that those kinds of opportunities really have enhanced our ability to go ahead and recruit and retain people.

Great. Let's come on to the Uniform business. You obviously have made the announcement that you intending to spin that business off. I guess the first question is why now?

That's a great question. This is a decision that the organization has been contemplating for quite some time. And I've had the question about why aren't you doing it for probably the last 2.5 years. And so once the announcement was made, now I get the question, why are we -- why are you doing it? Interestingly, I would characterize it this way. We've established a great leadership team inside of Uniform Services. The addition of Kim Scott, Tim Donovan and others have really created a leadership team that's capable of operating in a public company environment. They are focused on operating the business in a very efficient and effective way. We are largely behind the investment in terms of the route accounting system, the implementation, the investment has been spent, and we're beginning to drive the benefits of that system throughout the enterprise. And we're well ahead of the investment that we intended to make in sales infrastructure and leadership development and training. And so with those 2 big strategic initiatives behind us and the leadership team in place, it felt like it was the right time to go ahead and refocus the enterprise, let them really focus on operating as an independent business and create the environment for that company to succeed. And then also to allow the food service company to be focused on its segment and really succeed as well, creating the opportunities for optimized capital structures, creating the opportunity for focused equity that the leadership teams and the management teams could be compensated with and, frankly, creating an environment where investors could optimize their returns based on their specific investment strategies. And we think the businesses will continue to perform extraordinarily well. There is very little overlap between the organizations. And so we think the separation is the right ultimate strategy from both a tax-efficient distribution perspective as well as an operating perspective for the company.

And fundamentally, where do you think, in those 2 businesses, we would expect to see the benefits of those -- of that separation come through first? What sort of KPIs would you be looking for? What areas of those businesses have been held back by being under one organization?

Yes. I don't know necessarily that anything has been held back by being under one organization, but I do think they haven't performed optimally. And just to put it simply, when you've got a business that's 20% of the total company and the other part is 80%, where do you focus your attention on? What does the Board think about most? They think about the food service company the most because it's 80% of the revenues and 80% of the profits. And so I think it was -- I think it's appropriate to separate them to really create that optimal management strategy and focus environment. And that's really, I think, the benefit of it. The teams -- I'm a food service guy. I grew up in the business. I love the hospitality environment. I also love distribution businesses. I managed a couple of them over the years in Republic and Univar. They're very similar in terms of the distribution model that Uniform Services has. So I could see the differences between the 2 organizations, really understood that they're different cultures, different kinds of operations and felt that it was best ultimately to separate them. And I think from a return perspective, we will definitely improve the returns of both companies.

And then in terms of time line, you've obviously appointed the new management team within that business. The expectation is for it to happen sort of within the next 18 months. What are the next steps that are going to happen this year, next year? And then sort of what optimism is there that it could happen faster?

Yes, certainly. Well, I think we -- it can happen more rapidly. Really, the major factors are the carve-out financials, which will be complete at the end of 2022 with the 2022 audit. Moving forward on that basis, any regulatory filings that need to be done, the work in terms of separating the organizations has already been underway for quite some time, and we're very confident that we can move pretty rapidly once the carve-out financials are complete and don't anticipate any significant delays. These kinds of processes generally take, call it, 12 to 18 months. And we've just -- we laid our plan of attack out there giving us the flexibility for it to take that long, but I don't expect it to. I think we will be able to close it more rapidly.

Great. So at the Capital Markets Day, you gave a sort of range for the margin recovery to get to sort of 7%, 7.5%. Is the main uncertainty in that range inflation? Or is it more on the new business side?

Yes. No, I don't think inflation poses a risk to the margin in the long term. I think it's -- I think for us, the ramp to 7% to 7.5% is really dependent on continued optimization of the growth culture, continuing to ramp-up the growth rate of the business. We've had terrific results last year. We're having another record performance this year. And our expectation is that we'll continue to be able to accelerate growth in the organization. And so that's the prime driver. It's the leverage that comes with the adding and the selling of the new accounts, the leverage that comes with keeping your SG&A relatively flat. We don't have to add more district managers, more RVPs, more marketing resources. We can keep the SG&A relatively flat. So that's a very strong component of that margin enhancement. And then on the supply chain side, there's significant value creation that comes and margin enhancement that comes with increased volumes of product purchases. So as you increase your spend, the rate of recovery from your supplier partners and manufacturer partners goes up. They pay for growth. Quite simply, when you buy more from them, they'll pay you more. So those national volume discounts and trade discounts and rebates that feed the supply chain profitability come with growth. And so it's really, I hate to use this term, it's really a virtuous circle. You sell more, you create leverage on the SG&A, you get improved supply chain profitability and the margins come up. And it's not inflation dependent at all. It's really just the mechanism, if you will.

Great. And do you feel happy now with the level of sort of growth resource in the business? Is there a need for more reinvestment in things like IT, technology, more sales? Are you happy with the level?

No, I'm very happy with the level of resources that exist in the business. We added 35% to the sales force of the food service company, about the same level of growth on the Uniform Services side. So we've made that significant investment in sales infrastructure and literally sales resources on the street over the course of the last 2.5 years. So I think we're in a very optimal state with respect to the number of resources that we have in the business. They're focused on their respective geographies and/or business segments. So there's no significant investment that's required in order for us to continue to accelerate that growth. We're very comfortable with it. We may add an incremental person or 2 over the course of the next couple of years as we continue to grow and as we source new niches of opportunity. The Merlin sale is a great example of that. That's a niche where the industry hadn't competed before. There's lots of opportunity there for us to pursue. So we may add a resource here or there, but it's not significant in terms of the total cost structure of the company.

Sure. Given you mentioned the Merlin contract, there's a couple of questions from the audience on that one. So we can go into that in detail. I mean does the -- the first one is does the big Merlin contract make you more positive on the ability to win in markets like the U.K. where you're not the biggest player and some of those international markets potentially are going to be opened up by the sort of new type contracts? Well, we haven't -- we've seen a lot of contract catering growth before.

Well, I would say, certainly, Merlin has been a catalyst for us in the U.K. It's a terrific opportunity. The opening process is underway. We've opened the first 2 parks. We've got a couple of parks that will be opening through the balance of the summer and then onto the U.S. The Merlin team is extraordinarily happy. The Merlin organization is very happy with the process and progress, as are we. We're very encouraged by it. And we are continuing to focus on looking at opportunities like that in other parts of the world to expand in other markets, both in the U.S. and around the world. But I think we're positioned well in the countries we operate in. We're in 13 different countries. We're really focused on the markets where we can deliver value and where we've got a differentiated proposition and where we can really compete aggressively. And we've, to that end, we've made some very small acquisitions in Spain. We've made a small acquisition of Sodexo's operations in the Czech Republic, enhancing our position. We are #1 in the Czech Republic. It's a relatively small marketplace, but it's -- we are a very significant provider there. And so we'll continue to grow in the International market in those countries where we have relative strength. And we're not looking to plant flags in other parts of the world, but we're looking to explore additional niches where they present themselves.

Sure. And Merlin is the largest contracts Aramark has at just 7 of their sites. How big could winning Merlin's entire portfolio be? And is there any sort of ambition to go beyond with them?

Well, there is certainly ambition. And there, I think we've essentially said it's the largest contract. And I think people have extrapolated that it's somewhere in the $140 million to $150 million range based on what we've disclosed. The opportunity is much larger than that and I would say in the hundreds of millions if we're able to continue to pursue beyond the contracts that we've been awarded already. So yes, there is significant upside potential to that particular relationship. And we're very focused on getting the start done and doing it well and doing it right and serving the customer as well. Their key metric is customer satisfaction. This was not a profitability play for them. This is a way to drive the customer experience, improve the customer experience, and that's something that we're working very aggressively to achieve. So we see it as a significant growth opportunity going forward.

Great. And in terms of how do you think about the addressable market for contract catering as well as the Merlin side, there's been some expansions through the pandemic into more facilities management type business. What do you see as the addressable market? And how has that sort of changed in the last few years?

Yes. I would say the addressable market has expanded over the last few years, particularly as you take a look at those other markets like facilities. And we never would have considered the amusement space an addressable part of the market, to be honest. It was -- if you thought about the core catering business, we thought that the market was a certain size. It was a rough -- and it's still roughly 50% self-operated around the world's significant components of self-operation still left to pursue. So lots of opportunity and a very significant addressable market size. Expanding the universe to include integrated facilities management and things like the amusement sector just enhanced that overall market size. And I'm sorry I don't remember the total addressable market. Felise, if you remember what the total addressable market is? Yes, it's $500 billion. It's just enormous. And it's almost we're -- the outsourced version of that market is what, 10% or 15% of the total marketplace. So the opportunity is huge. There's lots of runway. And that's why I'm so excited about the business. I don't have to steal business from Compass or Sodexo or even my other competitors. The self-operated opportunity is so big that we can compete aggressively and pursue those opportunities. And yes, we'll compete aggressively against our competitors as well, but we're not focused on share. We're focused on growth and doing it at a value that creates opportunity for our shareholders as well as our customers. So this is an industry that I think you compete on, on the basis of quality and capability and not on the basis of price or capital. And so plenty of opportunity out there in front of us.

And do you think that, that not competing on price is something that has been sort of gradually coming in the catering industry? I mean we saw recently in the extension of the Chicago Public Schools contract, there were some comments in the news release saying that the sort of the way that they selected the contract isn't just based on price and on cost anymore. Does that have implications for long-term margin opportunity where going to be less price competitive?

Well, I think it does. And I think that that's one of the factors that's led to the margin expansion that's taken place in the industry over the last, make it the last decade or a little bit longer. The margins have gradually increased in the industry, and I think it's because of the implicit recognition that this business is a value-added business. And if you sell it on the basis of a relationship, you sell it on the basis of quality and capability and you don't discount your price. And so that's the approach that we have taken. And I think the competitors are fairly rational in this segment. And I think that's a very good thing. I do think specific examples like Chicago Public Schools is a great one. There is -- it's a public contract. Everybody knows what your price is, everybody knows what you bid and yet the market has been disciplined in terms of not discounting it because of the complexity of that operation and what it takes to really do the job well.

Your peers are also promising faster growth post pandemic and they were delivering sort of going into it. But do you think that there's enough outsourcing and up-sell opportunities there to accommodate all of that without any impact on the economics?

I do. I think they're -- in a normal year, historically, we would sell about 30% of our business would be self-op conversions. The last couple of years has been trending towards 50% not only for us, but for our competitors as well. And so I think the focus on that self-op conversion has been significant, and it's been done in a very competitive, rational way. And so I think there is plenty of opportunity for the 3 majors to continue to have significant growth. But -- and I'm focused on what I -- the markets that I operate in, the businesses that I want to be in. We've got -- there are some segments we're in that Compass doesn't compete in or that Sodexo doesn't compete in. We're always looking for those niche opportunities to be a more significant provider in those spaces. And then we're always looking for ways to extend our capabilities and services beyond the traditional contract catering. And Patient Engagement Advisors is a great example of that. It's a small acquisition or partnership that we developed over the course of the last year that really extends us beyond the boundaries of the hospital, for example, in terms of patient care and patient feeding. So the simplest way to think about it, it's like a concierge service for patients who have been discharged. It's making sure that they're getting their dietary needs met, their pharmacy needs met, their service needs met, their transportation needs met. And it's been a terrific opportunity. Where we've introduced PEA to our client partners, every one of them wants it, and they want it right now because it's a differentiated offering. They're Medicare reimbursements. The opportunity for hospitals to really extend care beyond the 4 walls of the institution is significant. And so they've recognized that that's a capability that we have, and it's something that we're pursuing very aggressively.

Great. Shifting gears a little bit, just to -- there's a few questions from the audience on capital allocation. Does the current environment make you think differently about the right level of leverage?

I get the question. I would say we're very comfortable in terms of our level of leverage. We believe that we'll continue to pay down the debt over the course of the next couple of years. We're committed to the 3.5 turns leverage target that we've outlined for Investor Day. I think we can actually go beyond that. And I'm -- this industry, this company has always been able to operate at relatively high levels of leverage. And if you think about the -- maybe the most dramatic circumstance in my existence was the day the world shut down in the COVID environment, and we were looking at what does this look like from a cash flow perspective and a debt perspective, how do we operate in this environment. And both Tom and I, our CFO, looked at each other and said, "Wait a minute, this is an industry that produces very strong cash flows. We have very high predictability. We know how to manage this environment." And over the course of the next 2 years, we've been very successful in that world. With rising interest rates, we'll continue to be very disciplined around debt paydown. We'll look for opportunities to refinance 2025 and the 2028 when those opportunities present themselves. We were multiple levers that we have in terms of managing both the cash flow and the debt level. And I think as the earnings come back up as we expect them to, the debt levels will come down naturally as a result of that. But ultimately, we're also focused on debt paydown. So our primary use of capital will be investing in new accounts and then debt paydown and then potential accretive bolt-on acquisitions. And those will be the priorities. That's the focus we have, and we have very strong line of sight to getting to that 3.5x level.

Sure. I mean a related question is beyond the Uniform split, are there any other material changes to the portfolio that you'd expect to happen over the coming years, either from acquisitions or from disposals?

I don't think from a disposal perspective, there are significant portfolio changes. I think we're in the businesses that we want to be in. I don't see transformative acquisitions. There's really nothing out there that would require significant infusion of acquisition capital. I think they're bolt-on kinds of opportunities like the Union Supply announcement we made, Forever Resorts. Those were niche acquisitions that really enhanced our capabilities in those markets. So I think our -- I think we'll be very disciplined around that. And I think we're very comfortable that we'll get to the 3.5x level and we'll be in a position to do what we want to do from a strategic perspective if an opportunity presents itself.

Great. And then another one just on the relationship with Mantle Ridge. I think it's a while since there's been any sort of public commentary. How are they sort of feeling about the investment? What is the time horizon that they're thinking about on that investment? And has COVID changed any of that?

Well, I will tell you I spent 3 hours with Paul Hilal at my home in Montana just this last Friday. The relationship is very good. Paul and I have known each other for quite some time, and we've engaged in a number of different projects together over a number of years. They're excited about the company, and his intentions are to be an investor in the business for the long term. His initial money was 5-year money. I think that was disclosed at the time. And I don't want to speak for -- are they thinking about portfolio changes or approaches? I will say, he's a continued committed investor and has expressed his strong support for the business. And we have a very strong personal relationship as well as a professional relationship, and I'm hopeful Paul will be on the Board for a long time to come.

Great. We've got a few minutes left. I wanted to finish with a couple of questions on ESG. In the catering business, there's a lot more to ESG than simply cutting carbon emissions. So the first question is, do you have a sense of how much new business that you're winning and how much you're able to perform based as being an enabler for your clients?

Yes. That's a great question. And I would say we're very proud of our approach and our achievements with respect to the ESG initiatives inside the company. One of the first things I did was to appoint Ash Hanson as our Chief Diversity and Sustainability Officer. And Ash has done terrific, and her team have done terrific work around the environment and really creating an organization inside of Aramark that's focused on this initiative and discipline. And so I think we're doing very good things. I will tell you that literally, a very significant amount of her time is spent with clients and customers understanding their needs, and potential customers, understanding their needs and their objectives for ESG. And so -- and literally, there isn't a week that goes by that Ash doesn't come into my office and said, I just -- I was just in on this proposal for this particular customer. These are the kinds of things that they're really looking for. So our intention is to operate always with a very high level of integrity and a very strong focus on meeting our customers' and our clients' objectives. So when they articulate those to us, that's what we build into our operating model. It's what we want to achieve for them. It's just part of our service ethic that we have a belief about our responsibility to the communities, our responsibilities to our clients and our responsibility to the planet and environment as well. So we're focused on all of those constituents. And we'll do -- we'll be working very hard to achieve their objectives.

Sure. And if I can squeeze one final one in on the S of ESG. When you think about Aramark's purpose as a business, what do you think is the most important thing for you and your managers to think every single day?

That's also a very good question. And we are -- at our core, we are a service organization and a hospitality organization and people who are focused on delivering day in and day out to our customers based on their needs and objectives. And they evolve. And they're different by community. They're different by industry. And so our job and what we're focused on is really understanding those objectives so we can optimize for them, so that we don't bring necessarily -- we have a set of beliefs that we bring to the party, but we also have to achieve the expectations of our clients and our customers. So when our beliefs are in conflict with our clients' objectives, then we decide not to work with that client anymore. And that does happen. There are organizations that ask us to do things that we won't do. And so then we focus on doing what's right and what's -- as I said, we do everything with integrity. That's what we're focused on day in and day out. It's who we are, it's what we believe in. And I think our business conduct policy, our ESG policies, our culture are all aligned in a way that really keeps the organization focused.

Great. Well, thank you very much, John.

Thank you.

And thank you all for listening.

Thank you.